Moody's Talks - Inside Economics - Harris on Harris vs. Trump

Episode Date: October 18, 2024

Ben Harris, Brookings’ Director of Economic Studies, joined the Inside Economics team to talk about the economy, the presidential election, and the economic policies of Vice President Harris and former President Trump. The bottom line: buckle in.  The election will likely be close and contentious, and the ultimate makeup of government will result in very different directions for policy and the economy’s future performance.Today's Guest: Ben Harris - Brookings, Vice President and Director of Economic StudiesPaper referenced by Ben Harris: Immigration and the macroeconomy after 2024Papers referenced by Inside Economics team: The Macroeconomic Fallout of Trump’s Tariff Proposals  Updated 2024 U.S. Election ProbabilitiesAssessing the Macroeconomic Consequences of Harris vs. TrumpHosts: Mark Zandi – Chief Economist, Moody’s Analytics, Cris deRitis – Deputy Chief Economist, Moody’s Analytics, and Marisa DiNatale – Senior Director - Head of Global Forecasting, Moody’s AnalyticsFollow Mark Zandi on 'X' @MarkZandi, Cris deRitis on LinkedIn, and Marisa DiNatale on LinkedInEmail the Inside Economics team with your questions: [e-mail] Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Zandi, the chief economist of Moody's Analytics, and I'm joined by my two trusty co-host, Mercia Dina Talley and Chris Duretis. Hi, guys. Hey, Mark. Good morning, Mark. How are things? They're good. Busy. Yeah.

I'm getting ready to leave on vacation. Chris, it doesn't feel like she has a lot more vacation than we do? I don't, I'm just saying. No? She just uses it differently, right? I do. I lump it all together. That's true.

She's so efficient. Yeah. Very good. But, you know, Chris is a lot is much more dedicated. He takes, you know, he goes off to Italy for three months in the summer, playing his botchy ball. And, you know, he takes the microphone down into his wine cellar. You're sipping Keanti or something down there while he's talking to us. I love this image. I got to, yeah, that's aspirational for me. This imaginary image that Mark's painting. Got to try this sometime. It's closer to truth than you let on. I'm, I think. Yeah. It's with all your crypto winnings. Again, again, more embellishment. Yeah, very good. Well, good. And we have a guest, Ben Harris. Ben, good to see you, Ben.

Yeah, it's great to be on. Thank you for having me. Don't you wish you worked for Moody's too? I mean, you could be like three months vacation in Italy, sipping Kianti, you know. Well, Brookings doesn't do so poorly on vacation. So we're pretty generous as an institution. but I do love being on this podcast. I don't listen to a lot of podcasts, but I do listen to this podcast. So a huge treat. And I will say at the beginning, I think we said you're not playing the statistics game, right?

Which gave me great relief because I have no idea how you guys week after week can nail these obscure statistics. I'm just so impressed every week listening to you guys. So being on with no statistics game is best case scenario for me. Let me just introduce you to the audience. Ben is a VP at Brookings and head of Director of Economic Studies. And you were on once before, Ben, right? Yeah, I was on after I came out at Treasury or I was assistant secretary and chief

economists. And I think we were talking about the debt limit, which, you know, thankfully we're not talking about today. That's been resolved. You know, the statistics game. Jared Bernstein, you know, the Council of Chairman Economic Advisors, who's been on the podcast before, accused us of planting the answer. because we were so good. I go, that's not happening on this podcast, Jared. It's not happening.

To be fair, though, there was one question really, really arcane about, I don't know, Chinese agriculture, and I got it right only because I had read it on some media like the day before, and it sounds like otherwise I would not have known it because there's like no possible way you would know that answer. Someone gave you that answer, but not true. We don't do that on this podcast. But anyway, it's good to have you on board. Ben, before you were a treasury, you were, I think this is the right way to describe, but you were a president Biden's chief economist, right, during the campaign, the last campaign. Is that fair? I went over, I was at Brookings in 2014. It was a policy director for the Hamilton Project. And then I was offered the job of being

Biden's chief economist, which was a follow-up to Jared Bernstein with a three-year-old. lag. So that position was empty for three years. I held it for the last two and a half years of the Biden administration and then stuck around with the president and then was the senior economic advisor for the campaign. So this time around where I've stayed out of politics with the 2024 election is very different than it was for me personally in 2020. That's why you look so so much healthier than I've seen you in times past. Yeah, a lot more, a lot more sleep and a lot more sun and more exercise. So things are good for me personally. Yeah, but do you miss the kind of the flow of a campaign?

It must be tremendously exciting to be there or not. I'm not sure for me that exciting was the right word. I mean, it was exhilarating. It was fast-paced. It was exhausting. And it was particularly exhausting to work for a campaign in the middle of a pandemic where you basically wake up, go downstairs in my house and work until I went to sleep. and I did that for six straight months.

There were days my wife was like, look, you have to go outside and get some sun. You haven't been outside in a week. But it is hard. I mean, you care deeply about campaigns and not just the presidential campaign, but all the others. And my rule of Brookings demands

that I sit this one out. So I think you're right to ask whether or not I'm enjoying that. But I get to do fun things like come on this podcast and talk about it. So it's a good consolation prize. Well, thank you for coming on. And we, of course, because we're now just a two, three weeks away from the election. I do want to talk about that

and, of course, talk about the policies of the candidates and have a fulsome discussion around that. But before we do, just to lay the table, how are you feeling about the economy? What's your sense of things? So I think the U.S. economy, this is the definition of a soft landing. I mean, to claim otherwise, I just don't think it's a credible, a credible case at this point. I think a year ago maybe you could have said look, we haven't achieved a soft landing yet. We probably won't. But by any reasonable definition, we have tamed inflation. And I'll digress on that in a second. You've got strong economic growth with the envy of the developed world. We have a major wealth boom in this country, which I think has not received enough attention. That's due to rising housing prices, but also a stock market,

which has been on fire for several years. And we also have had this investment boom in the United States, where at this point in the business cycle, typically you see investment trailing off, but A, investment has remained constant, which has added around $400 billion in extra investment to the economy, and is also far outpaced our competitors in terms of investment. So, you know, we can talk about the labor market,

we can talk about inflation, we can talk about economic growth, but on all the major metrics, I think things are looking really good. On inflation, and you guys referenced this, I know you did a deep dive in your last podcast, but inflation in the United States, I don't think this story gets enough attention, which is we really had two different episodes of inflation since the pandemic. We had the first episode, which lasted for about two years,

and we can debate the drivers of this episode, but it was really broad-based inflation. So you saw cars, apparel, other goods, and price and services just went up across the board, really broad-based inflation for about two years. I think that was driven by primarily supply chain constraints, but reasonable people can disagree. But just breaking down the source of inflation for the last two years or so,

it's been driven almost exclusively by shelter prices. And the drivers of that are really different than the drivers of the broad-based inflation we saw for the first two years. Rising shelter prices are a double-edged sword. So, you know, for one person a more expensive home, for another person, it's more housing equity. And so it's just to say that the U.S. economy has not dealt with broad-based inflation for several years now that's above levels that we're comfortable with. And I don't think that gets enough credit outside of sort of the informed discussions like this one. So I'm very optimistic about the U.S. economy.

Yeah, I very much agree. I mean, I think next week we get the consumer expenditure deflator. Of course, that's the inflation measure of the Fed targets, the 2% target for the month of September. And we expect that to be 2% on the nose, year over year on the nose. And if you exclude, as you say, the cost of owners equivalent rent because the cost, the implicit cost of home ownership, which is the biggest component of shelter costs, obviously, because two-thirds of Americans own their own home, it's one. 0.5%. And it's been, that's year over year, and it's been that way really since the beginning of the year. So not only are we there, it feels like, but we've been there for a while. If you could. Yeah. And I made this point at a Brookings paper on economic activity conference. In retrospect, maybe I shouldn't have made this point because I was sitting between Jason Furman and Ben Bernanke. But I was asking the question, if we could go back 10 years or 15 years,

or however long, and the Fed could redefine the type of inflation that it targets. So rather than core PCE, should the Fed look at core PCE less shelter? Would we be in a better spot? And, you know, I was arguing that we probably would be. A, I mean, there's a lot of problems what they think including shelter in your target of inflation. The first is that if, when with respect to owners occupied rent, if a price goes up, but Americans don't pay it, should the Fed target it? So the value of my home went up a lot over the course of the pandemic. I didn't pay any more for it. So should that be a price of the Fed targets? Secondly, I think that our understanding of the relationship between more restrictive monetary policy and housing prices is not

especially strong. And in part, I think we don't have a great understanding of the lag between changes in interest rates and shelter prices and rent. I think that we don't have a great understanding of how that changes after a period of ultra-low rents when you've seen a lot of homeowners refinance. And so if we don't understand the relationship between monetary policy and housing prices, should we really include it in the basket of things that the Fed is targeting. So, you know, it wouldn't make sense for the Fed to change its target definition of inflation on the fly. But if we could go back in time and redefine it, I think I would argue for dropping at least

OER from the definition of inflation that Fed's targeting. Now, I can bet Jason said, no, you shouldn't do that. I'd be my guess. I think the whole room said I was an idiot. Okay, right. Okay. Even Bernanke said that. I thought he might be somewhat sympathetic.

to that argument. He didn't say anything. He has to say, we actually share a wall. His office is next to mine, which is another treat of working at Brookings. That is great. And actually told me I was an idiot. So maybe that's, you know, if that's a weird. Well, if you're an idiot, I'm with you, right there with you, Ben.

I totally agree with you. And I have seen, I think I saw from the Minneapolis Fed, that some folks, some researchers in the Fed system are calling for this as well, right? at least headed in that direction. There was a piece basically saying that the monetary policy should not target inflation measures with OER, owners equivalent rent. Yeah, so that was Neil Marotra and some of his colleagues. Neil was one of my deputies at Treasury, just a brilliant economist.

Yeah, I think he was, I don't think they were explicitly calling for the exclusion of OER, but maybe raising questions about. Raising questions, yeah. Yeah, yeah. Anyway, well, before we move on to the meat of the matter, let me ask you. you, though, you sound very sanguine about the economy, and I think the group is right on there with you. Putting the election aside in the aftermath of the election, is there anything out there that really is making you nervous or you're worried about? I mean, it's hard. It's hard to

put the election aside. The war, I mean, the war in Ukraine worries me a lot. It worries me for energy policy. And I worry about what that war looks like if we have an election where we have a president that decides to walk away from the United States support of Ukraine. And I guess other geopolitical tensions in the Middle East as well. And just because there's just so much uncertainty around the outcome for both of these conflicts, that uncertainty worries me. I think the first order of concern is obviously the cost of energy. And this is, by the way, you know, one reason to move away from oil. There are quite a few.

You know, one of the privileges I had to my prior job when I was working at Treasury was working for Janet Yellen. And she had this great quote where she would say Putin doesn't control the wind and the sun. And, you know, there's a lot of reasons to move towards better sources of energy, towards renewable sources of energy, but one of them is volatility. And so I guess that is top of mind for me. in the near term. Yeah, it makes sense. Now, I get this feeling that, you know, when you talk to people,

you have the seven degrees of separation. I think talking to you, I got the one degree of separation. Like, I'm connected to the entire world talking to you. A real privilege, a real privilege. Let's talk about the election. And maybe we can begin this way, because there's many different outcomes here. president, Senate, House, the makeup of government, which obviously goes to what policy might look like on the other side of all this. How would you handicap things? You know, what's the most likely scenario in your mind in terms of the makeup of government on the other side of the election? And maybe what's the second most likely scenario? So that kind of will frame the discussion going forward. Yeah. So the conventional wisdom among forecasters or reputable forecasters,

are that A, the presidential election is a complete toss-up. And I think, look, I think it's roughly 50-50. I think anyone who thinks that either candidate has more than 60% chance of winning right now is not credible. I can accept that Harris has anywhere between a 40% and 60% chance of winning, but anything outside that range is not credible. The Senate is about 85% likely to be Republican. The House, I think you mentioned wisdom, is roughly a toss-up. But there are correlations amongst these outcomes.

And so the most likely outcome would be a Trump presidency with unified Republican control or Harris presidency with the Democratic House and a Republican Senate. So I think the expectation is the House will probably go the way of the White House and the Senate will probably, in either case, will probably go Republican. but if you have a Trump White House and a Republican Senate, you're more likely to have a Republican. Sorry, if you have a Trump White House, that means you have a Republican House, and in that case, you're more likely than not to have a Republican Senate. You're right to frame the question this way.

So a lot of times you'll talk about the election and people will ask, well, who's going to win the White House? It's really important to break it down the way we just did, which is think about the composition of Congress for a few reasons, one of which is if Kamala Harris happens to win and the Senate switches to the Republican Party, Harris would be the first president since George W. Bush to assume the White House without own party control of the Senate. And this matters not just for the passage of legislation, but also matters for the confirmation of her cabinet and the sub-cabinet. I think that a Harris administration with the Republican Senate means a complete standstill when it comes to confirmations. I think it means that if she does get people confirmed, they have to be much more moderate than you saw in the Biden administration where you had a lot of progressives, you know, basically up to near a tandem who couldn't make it through the Senate were being confirmed.

And I think that this is being under, you know, underconsidered when you think about what this means. either an empty cabinet or a cabinet that is not filled with very many progressives would have massive consequences for a Harris presidency. But then, of course, there's the legislative question. And my take is that if you have dividing government, we're basically a standstill outside of legislation that has to get passed, like the extension of the TCJ, which maybe we'll talk about later. So just to summarize, there's two likely scenarios here. One is Harris, president, divided Congress, Republican Senate, Democratic House, and then the other is a Republican sweep, Trump, President, Republican Senate, and House. Exactly. Okay. And, you know, that's exactly

our view. In fact, we had a webinar yesterday talking about all this. our baseline is Harris divided government 40% probability, Trump, Republican sweep, 40% probability. And then we have 10% on Trump divided government, 10% on Democrat sweep. But it just does feel like it's coming down to those two different scenarios. Yeah, I'm with this. So we'll presumably will be all wrong together. Because we actually had Michael Strain on last week, you know, the head of Director of Economic Studies at American Enterprise Institute, and he landed in the same exact place. So we're all coalescing around the same thing.

Let me ask you, before we get to the other side of the election, you know, we've got this election dead ahead. And obviously based on this conversation, it's going to be very, very close. And it feels like this, we might not know what the makeup of government is for a while. I mean, we're here in Pennsylvania. Pennsylvania is kind of ground zero for this election. we have a lot of mail-in ballots. By law, Pennsylvania doesn't start counting the mail-in ballots until election day. So it could very well be days. It could be weeks.

It could be a month or two, maybe, depending on how things play out. How do you, do you agree with that kind of assessment? And does that make you nervous in terms of kind of, you know, it doesn't feel like there's any upside there. It just feels like different shades of downside. Yeah. I mean, earlier you asked me about what I was worried about. about in terms of the US economy, and I said geopolitical conflict.

Right. But if you pose a question differently and you said, what are you worried about for the US? I would say threats to democracy. Right. And to me, those threats outweigh really any other concern, everything from the labor impact on AI to insufficient labor supply. I mean, everything else pales in comparison to my concerns around the possible deterioration of democracy in the United States.

States, which has happened very rapidly in a very short period of time. So I worry more about that than literally anything else. Yeah. You know, being here in suburban Philadelphia, which is, there was a great piece in the New York, I don't know if you caught it today about Pennsylvania and looking at seven different parts of the state that could drive the election results. And here, one of the, the first one was where we are. And so we're paying very close attention to lawn signs, right, Chris? Yes. Indeed.

And what are you noticing on the lawn sign indicator? Just in the last week, there's been a sharp uptick in the number of yard sides. I think people have been reticent to show their allegiances, but now it's an open season. And there's a huge divide, as we can imagine, between the way we have these little towns in Chester County, PA. the cities, the urban centers tend to be very Harris-centric, and then you go a little bit out into the more rural areas, and they're huge displays for Trump. So very, very stark differences here. Yeah, I've noticed the same thing in Virginia. I have three daughters.

They all play travel soccer, which means on my weekends, they just drive around the state and to go to various soccer fields. And so you get a nice cross-section of geography, and I agree with both those, both of those. observations, I was completely struck by the lack of political signage, including bumper stickers and the like, except until about three weeks ago. And something seems to have changed as we've entered October. And everyone seems very willing to display their political preferences. Secondly, you're completely right to talk about the breakdown between urban and rural enthusiasm for each candidate. I mean, rural America is 1,000 percent behind Trump. And when I've when I've spoken with or read about people who've gone to these rallies,

you're seeing a real enthusiasm for Trump in rural America. And you're seeing a real anger at Democrats among people who are attending these rallies, just, you know, almost just furious at Democrats. And then you see the exact opposite in urban areas where people are getting very excited for Harris. she does have these packed rallies. She's raised an enormous amount of money. And it's just very hard to understand exactly how this will play out in the election.

There are a bunch of different issues that I think are probably not getting enough play. There was one really interesting survey I saw of people who vote based on their religious values, namely Christians and particular born-again Christians. And that survey was showing that a lot of those voters were moving away from Trump. which I was surprised by. This is a shock that we haven't been talking about very much.

I also think we haven't been talking about North Carolina enough. And so in North Carolina, you have a very different situation than you have in, say, the swing states and the Midwest states, so Wisconsin, Michigan, Pennsylvania, where you would assume that that shock would be correlated, right? So if like the rural push for Trump outweighs the urban enthusiasm for Harris, you would assume that would play out similarly in Detroit and Milwaukee. Philadelphia. But North Carolina is a special case where you've got a very bizarre situation with the Republican candidate for governor. And so that's an uncorrelated shock. And North Carolina is somewhere

around, you know, 0.5% gap between Harris and Trump. If North Carolina goes for Harris, you know, all bets are off. This 50-50 toss that they were talking about. I mean, you've got to revise your probability substantially. So I think we're not paying enough attention to to North Carolina. I think we're probably not paying enough to voters that base, voters that form their preferences based on their, on their, you know, identification as a Christian. And I think we're also a little, we're all sort of asking this question about what is the bias in polling. And I hear a lot of people going back to 2016 and probably overweighing that relative to 2022 when we did see a shock

in polling. There was a surprise. We didn't think Democrats would do as well in the 22 midterms. And so I don't know why you would wait 2016 over 2022. So those are, I think, three of the election overlays, they're probably not getting enough attention. Great point. And just going back to the antic data, Marissa, I guess it's not worth talking to you, right, because you're in Southern California. Are there any law signs in Southern California? Yeah, but it, you know, it is interesting because what I've observed is the and it's never Trump signs. It's Trump flags. Right. So the Trump flags have been there for forever. But I would say in the last couple weeks, I'm now starting to see a lot of Harris Walt's lawn signs pop up. So like the Trump, you know,

Trump supporters have been there and displaying their support for, I mean, some of them never. took the flags down after the last election. They've just been up. But now I'm starting to see more Harris signs pop up. But yeah, I mean, it's not, it's not important what happens here. Yeah, Ben, I at least, at least in the presidential, right? I mean, we have some tight house races out there that could matter. But well, my anecdote is my, my street. It's half Republican, half Democrat. And if I go back to 2016, I saw a lot of Trump signs and I go, and I just completely dismissed it. I didn't really think of anything of it. Of course, that was a mistake. And then in 2020, there was more Biden signs. And this time, I'll tell you, I'm counting them. It's 50-50.

That's how close it is. It's really close. I hear you, though, Ben, about North Carolina. Actually, our election model has North Carolina swinging to Harris, but we'll see how that goes. Let's move forward to policy. And I thought before we got down to a little bit of the nitty-gritty of the individual policies that these folks the candidates have put forward maybe you can give us a sense of more broadly what's the overarching policy theme that the two candidates are putting forward here what what's Harris because there's a lot of a blizzard of proposals you know they've been put forth it's hard to kind of put that into some kind of context so what is what is Harris actually trying to do here with their policies and then we'll do the same thing with with president

So Trump is easier. Trump is easier. Trump is easier. And so maybe I'll start with Trump. So I think Trump really has two different views, two different primary themes running through his policy agenda. The first is an isolationist agenda in which the United States focuses more on home than the rest of the world. It's the retreat from globalization. And you see that in terms of immigration.

You see that in terms of trade most prominently. and you see that in terms of diplomatic relations. And the second thing is Trump is ultimately a supply sider. So ultra low tax rates on capital coupled with, I think, a preference for an accommodative Fed. And so it's pretty easy, I think, to define the Trump. That's a nice way of saying it, Ben. Thank you. Okay.

Very good. I'm just saying. So for Harris, Harris is a bit more complex. in part because for her policy agenda came together so much faster and came together, I think, in an unprecedented way. You know, as each month goes by, kind of reflect where we were in 2020. And at this point in 2020, Biden not only had, not even not even this point in 2020, four months ago in 2020, Biden had a complete policy agenda and then was pivoting in real time to talk about what he would do if he were president in the of the pandemic. So Harris had to put together her policy proposals very quickly. And so you get a mix

of policy proposals which are unique to Harris and those which she adopted from the Biden administration, which I think was largely out of necessity. She just didn't have the time in the staff to lay out a fully fleshed out policy agenda. To be fair, though, to her, Trump also doesn't have a fully fleshed out policy agenda. So if you go to his website and you look at his policy proposals, You know, some of them really are just nonsensical and others are extremely vague. Now, on trade, I think that he's been much more sophisticated and laid out more precise policies. But anyway, so for Harris, she had to put together a policy proposal, a policy agenda very quickly. I think that the way that I would characterize it is, I think you have to separate out housing because it's such a big part of her agenda,

which is she wants to have a massive expansion and housing supply. She wants to double down on refundable tax credits for families and workers. She wants to address costs through legislative and regulatory means. And she wants to pay for all of this by raising the tax rates on capital. So her tax policy is sort of the exact opposite of Trump's. Yeah. Can I take a crack at it and see what you think? I'm not going to say anything different, just I'm saying it in a little bit different way,

just so I can get my own mind around it. You know, as you say, for President Trump, it's pretty straightforward. It's an isolationist policy, you know, tariffs, just a question of how high, how broad, deportation, probably not 11, 12 million people that are unauthorized here, but hundreds of thousands each year, that kind of thing. Similar to what he did in his first term, in tax cuts, unfunded, mostly unfunded, you know, he's going to generate some tariff revenue for sure to help pay for the tax cuts, but not come close to the kind of tax cuts he's talking about.

So it's pretty much across-the-board tax-cutting and definitely definitely deficit. So it's very isolationist in tax cuts. That's the basic kind of message that he's putting forward. With the Vice President Harris, it's really about the lower and middle-income Americans that she's really focused on trying to improve their standard of living, their purchasing power. You know, you talk about housing, more housing supply to try to put a weight on rents and prices to make it more affordable. That's the number one budget item in everyone's budget. And she also talks about tax cuts, but for lower middle income Americans, the child tax credit, the earned income tax credit would be the best examples of that. And she tries to pay for it as best you can through higher taxes on higher income, high net worth.

wealthier households and corporations. Oh, and also, I should also say we're talking about lower middle-income Americans, also small businesses, which tend to be the same group, you know, small, lower-middle Americans. And so she's really focused on that those groups and saying, you know, we need to work on containing the cost of living and improving their real living standards. What do you think? Is that a fair way of characterizing? I mean, I like the way you put that in terms of she's focused on expanding the purchasing power of consumers, which interestingly is kind of the exact opposite of what an aggressive tariff policy would do. And so I think virtually all economists other than Peter Navarro think that tariffs would

in effect have a similar incidence as a retail sales tax, which is just to raise the cost of purchases by consumers across the board. So, I mean, Trump has said explicitly that he doesn't believe this economic theory, obviously, and some of his advisors have said that it's nonsense. But I think there's pretty good academic evidence that the incidents of tariffs are passed through to consumers, whole hog, and we should be talking about tariffs like a national retail sales tax. Yeah.

Okay. So let's go back to the two scenarios, the two most likely scenarios, Harris, divided government, the Trump sweep. Under Harris divided government, it feels like, as you were pointing out, very difficult to get much of anything done. She's going to have a hard time even getting her nominees through the Senate to confirmation. It feels like that's kind of more like the status quo. We're just not going to see big changes in policy going forward. First, do you agree with that statement? And second, the thing that worries me the most about that scenario in 2020, is the debt limit and the fact that that gets reinstated and the implications of that.

So what do you think? Do I have that roughly right on the status quo in the debt limit? Yeah. So on the status quo, and I should have been more precise in my characterization, I think the expectation would be stasis for the first two years. But then we get to 2026 and as bad as the map looks for Democrats in the Senate in 2024, it looks equally as good for Democrats in 26. So you might see a trajectory of an administration that's completely the opposite of what you saw under President Trump and President Biden and President Obama where they came in and there was this flurry of legislation because they had own party control of the Senate and an own party control of the House.

And so those three administrations, as different as they were, were the same in the sense that you saw a lot of legislation of the first two years. For Harris, it could be the exact opposite where you see stasis for two years. she wins back the Senate, I don't know what's going to happen with the House, but if she has the Senate in the House in 26, then you're going to see the legislation that looks more like the prior three administrations. I think that you're right to bring up the debt limit. One big question is, what is the interaction between the debt limit and expiration of the tax cuts and job act, which was President Trump's signature tax cut passed in 2017? You know, there's really very opinions within Washington.

in D.C. Some people are absolutely certain that these two negotiations will be intertwined. And others feel that you'll see the debt limit come up over the course of the summer. It'll be handled in turn. And then towards the end of 2025, we'll turn to TCGA. I really have no idea which way it's going to go. My guess is they'll probably be separated, but that depends on the competition of Congress and a lot of other factors. Right, right. Well, while we're on Harris, and that's a very, I hadn't thought about that. That's a very interesting point about 2026, that, you know, all the Florida, under Biden's term, was all the, all happened in the first two years, nothing in the past, in the last two,

and could be the very opposite under Harris, divided government. You know, some of the policies she's put forward, I just, in my mind, I question, and I'm just wanting to get a sense of, you know, where your mind is. I get a little nervous, or maybe even a lot nervous, about the price. price gouging kind of discussion around particularly, I mean, obviously she's focused going back to the frame, lower middle income Americans and their purchasing power, one of the most important cost is their groceries and grocery prices have risen, you know, quite a bit. They're up 20, 25% from where they were three years ago.

And she's been focused on price gouging as the way to talk about that. How do you feel about that kind of conversation? So I think the price gouging proposal is largely inconsequential. Most states, something like 40 states, have price gouging laws on the books. Most Americans live under laws that prohibit price gouging. Most of the state-level price gouging laws follow a similar pattern where they say, in periods of extreme economic stress or in periods of an emergency situation, corporations and other businesses cannot raise prices over a certain amount.

I'm unaware of situations in which those laws have been binding, and I'm also unaware of any evidence that suggests any of those laws have been problematic. And so my reading of her price gouging law was just an extension of those state laws to the federal level. And the campaign has clarified this. What they're not talking about, they're not talking about Lena Kahn marching down the grocery aisle and saying you can charge $5 for Cheerios, but not $6. FTC head. FTC head, yeah. And so what they're talking about is just an extension of the state laws, which, you know, we just lived through a period of extreme stress.

And those state laws did not cause any problems. So I think it's probably an innocuous proposal. And I think it's been somewhat misinterpreted. Got it. So it feels more like just kind of a political. tool that she can use to talk about this as an issue, not that there's really much substance. Yeah, maybe it's just a signal that she's concerned about grocery prices. And look, maybe there's certain instances in which there is price gouging. You know, I feel like there

were other factors driving inflation. I could probably give you five or six that were ahead of price gouging. So to me, I interpret that as a signal. Okay. The other one that bugs me a little bit, And just again, curious in your view, is the tax on unrealized gains. Again, it fits in the frame. You know, I'm going to raise taxes on very wealthy individuals, use that revenue to help pay for tax cuts for lower middle-income Americans. But that one makes me particularly, I mean, obviously, this is on unrealized gains, not realized gains. That makes me nervous for lots of different reasons. One of the most obvious is just feels like it's pretty unworkable.

you know, to actually execute on that. But curious in your view on that particular proposal. So two things. So she actually has three different proposals around capital gains. And you were right to distinguish between unrealized and realized. So her three proposals around capital gains, A, the policy that you just referenced, which was actually an adoption of a Biden budget proposal, which she adopted in, in whole where she said, I support the Biden pay for us, but didn't explicitly call out this proposal. So what this says is that for high, very high net worth individuals, those with more than $100 million in net worth, so the richest of the rich, would be subject to a minimum tax of 25% on both realized and unrealized, so on all types of

income, including unrealized capital gains. I think this works in, it works very well in a textbook. In practice, there are a lot of challenges with tax administration. It's very hard to value certain types of income. I mean, we know how much equities are worth, but a small business is very hard to value. It also creates certain frictions in terms of, well, what happens if you have a big gain one year within loss the next year. So administratively, it's very hard. In a textbook, it makes sense where we see changes in wealth are prescribed as income, and then you would want to tax it the way you tax other types of income. But the administration around this is really hard. But I also think because it's not an explicit Harris policy and it was adopted when she said,

I back the Biden pay for us in the budget, we probably want to discount her enthusiasm for that a bit. If she really liked that, she would have called it out separately. The two other proposals, I think, are better proposals. One is just raising the capital gains rate to 28% for people who have more than a million dollars in income. And the second one is the one that I'm particularly enthusiastic about, which is taxing unrealized capital gains at death. And the reason I'm enthusiastic about that are A, I think the fact that you can pass these assets onto errors tax-free creates enormous lock-in. So you see people holding on to inefficient investments just for tax reasons. And you never want people doing things just to skirt taxes, right? You want them to put the capital

where it's the most efficient use. And secondly, tens of billions, if not more, in income, goes untaxed every year because you get the step up and basis. So if I bought Microsoft for $10 decades ago and now have $10 million in gains from that Microsoft stock and that happen to die, none of those gains are taxed. And so that creates a real inequity with wage income and I'd just like to see more equity across different sources of income. Makes sense. Hey, Marissa, are there any proposals that VP Harris has put out there that you want to call out that you're queasy about or don't like or just nervous about? Yeah, and I think both candidates have said this, not taxing tips for people that make

under $75,000 a year. There's also, I always see it bundled with not taxing Social Security income. Could you talk about those, Ben? Yeah, so economists really don't like not taxing tips, because why would you treat tips any differently from another type of income. It potentially creates real opportunity for evasion. You know, I can go to my employer and say I'd rather be paid in tips than income. And I think will lead to further deterioration of the tax base. So both candidates have backed that. Economists tend not to like that proposal. As far as the tax on or absolving Social Security beneficiaries from any tax

on their benefits, it sounds really good at the face of it. And so the basic taxation around Social Security benefits are that there's three different tiers of taxation, either for low and middle income taxpayers who get Social Security benefits, they're not taxed on their Social Security payments for sort of higher middle income folks, half of their Social Security benefits are taxed, and for people that have higher incomes, 85% of their benefits are taxed. The thing is, is the revenue from these taxes go into the Social Security and Medicare trust funds. And this proposal is just really bad news for the long-term solvency of particularly the Medicare trust fund.

So the Medicare trust fund is expected to be exhausted in 2036. The Social Security Trust Fund, if you mix in the Disability Insurance Trust Fund, is expected to be exhausted, I believe in 2034. These always move around a bit year to year. But so for Medicare, this proposal would move up the exhaustion date of the Medicare trust fund by five years. So it moves it from 2036 to 2031. This is a huge jump. We're moving in exactly the wrong direction and really undermines the notion of Medicare being there for the next generation.

For Social Security, it's less severe. It moves up the exhaustion date by one year. But that's, again, still moving in the wrong direction. You know, one question that I would have for President Trump would be that in his platform, he said he wants to protect Social Security and preserve the long-term solvency of this program, but yet if you look at his policies, they do exactly the opposite. So I would love to hear from the campaign what their plan is for not only compensating the trust funds for all that money lost by the non-taxation of Social Security benefits, but then also preserving this for the long run. I thought you guys were going to have a problem with the different policy of Parises. I thought to you, Mark, I thought you would say the first time homebuyer tax credit. That would be, yeah, I don't like that either.

That would be next. But, you know, broadly speaking, I want to move on to President Trump in his policies as well. But, you know, broadly speaking, the most likely scenario is Harris divided government status quo. So these things we're talking about that we don't like or we're queasy about or we're we're a little bit nervous about them, very unlikely, I'd say close to zero, probably a zero probability that they ever, you know, get very far or get anywhere, at least in terms of implementation. So this is more of a theoretical discussion, I think, than a discussion around what might

actually become policy. So, and, you know, I think it's pretty free to say, if you like the economy today under the current policy and the current policy doesn't change, then that would argue, you know, economy should be just fine, you know, as we move into next year. Growth should continue to be close to potential. The economy should remain at full employment. As you say, the soft landing should continue. But let's move on to President Trump and kind of dissect his policies.

And, you know, the one thing, we talked a little bit about it, but I want to go into a little bit more detail is tariffs. I don't know if you, Ben, I don't know if you caught the, interview with President Trump at the Economic Club of Chicago. Did you happen to catch that? Chicago, he did Detroit and Chicago. He did Chicago. It was, I think it was it a few days ago, a few days ago.

I highly recommend looking at that. Oh, and I did have one broader question before we get into the nitty gritty. You know, one thing I hear, this is now, we're talking, this is this next scenario, Trump sweep. So what President Trump wants to do, much higher probability. he's going to be able to do it. So very likely the policies he's talking about are the top policies that are going to be implemented.

But when I talk to investors and clients and officials, many officials, they might say something to the effect, well, you know, this is just political bluster. I'm not really sure. He'd ever implement any of these things. Or the other bearing on the theme is, you know, he's going to be reactive to basically the stock market. If the stock market starts to throw up all over whatever policy he's putting forward like a tariff or whatever it may be, he'll backtrack and, you know, we won't, these policies will never be implemented. Do you have a view on that? I mean, how do you think about that? How worried should

we be that he's actually going to implement anything close to what he says he's going to implement? Or like what he's, you know, going to implement. Yeah, there's essentially two different views among his advisors. And even though you're probably picking up a bit of a democratic bias for my comments, if not more, I do spend a lot of time talking to Trump advisors and talking to people who will likely serve in a Trump cabinet. And I think there's sort of two different views. One, particularly around the tariffs, which is that he's saying all this as a negotiating tactic. He never really will, he never intends to implement these across-the-board tariffs that he's proposed. He really doesn't want to deport 10 million people. But he's just,

using it as a negotiating tactic in order to get to an outcome. That's roughly 50% of his advisors seem to think that, or people who are sort of affiliated with the Trump way of thinking. The other half, I think he will actually do this and will intend to do this. And the only reason he didn't do it in the first term was because, you know, the administration wasn't quite prepared for some of these more drastic, drastic actions. So there's really a split view on this. I will say too that when we start talking about outcomes, I think it's really important to talk about the number of senators in each party. So in the first part of the Biden administration,

and I say we, because I was working for it, we tried to get through this massive bill in terms of the billed back better legislation, which had that passed that would have been, I think, the most consequential bill of the last half century, so of my lifetime. It was really hard to get that passed because, every senator was the marginal vote. You had 50 votes in the Senate. When Trump was president in 2016,

Republicans had 52 votes, which was not enough to get ACA repealed through, but was enough to get a $1.5 trillion deficit-financed tax cut through. And so the ability to get through your agenda, if every senator is not the marginal vote, is much higher than if you have only 50 votes in the Senate. So my sense is that if Trump wins, he'll have 52, 53, 54 votes in the Senate, and we'll have a lot of leeway to get things

through because no senator or no pair of senators are the marginal vote. Got it, got it. I guess also some of the policies we're talking about here, tariffs, immigration policy. A lot can be done under executive order anyway. You don't need Congress, or at least he'll, you actually may need Congress, but it feels like based on his first term, probably ignore it and do it and see what, see what consequence there is. Yeah, well, do you want to dig them on tariffs for a second here?

Yeah, that's where I want to go next. Yeah, tariffs. So let's talk about tariffs because, you know, obviously this is where economists, not every economists, but I mean, I think you've talked to 100 economists, 98 will tell you terrorists, at least the kind of tariffs we're talking about here, universal, broad-based kind of tariffs are a really bad idea. There's two that would say they think it's a good. I don't know who those two would be, but there's probably two out there that would say that.

but 98 would say not a good idea. So why are we, and by the way, before I turn it back to you, going back to the Chicago Economic Club talk, I highly recommend listening to that because once I listen to that, I felt more strongly that he's of the camp that he's going to do what he says he's going to do. You know, he may not be 10, 20 percent tariff across the board or 60 percent on China, but he's going in that direction. And he actually named called countries.

And I'm thinking those are the countries that are in his crosshairs. Obviously, China, Mexico, you mentioned Korea, he mentioned Japan. I don't know if you mentioned Canada. I'm not sure if I can't quite remember. But I got came away from that thinking, you know, we should be prepared for higher terrorists. With all that as a preface, let me just throw it back into your court. Okay. So first, before we get to what the Trump proposal actually is, I will say if when we're here in 2016,

we would be talking about how Trump had promised 35% tariffs on Mexico, 45% tariffs on imports from China. He never delivered on any of that. He had a much more surgical approach to tariffs on China. And if you take a historical view of the average tariff on U.S. imports, you could barely see the impact of the first Trump administration. So maybe we went from around an average tariff rate of about 1% to up to 2% in the 1930s after Smoot-Hawley, we were at 20%.

So in the grand scheme of history, what Trump did in the first term was inconsequential, virtually, when we talked about trade. So he did not do what he said he was going to do, you know, in my view, thankfully, in the first administration, but things might be different. So he really has a six, five-prong proposal when it comes to tariffs.

The first and the most consequential is an across-the-board tariff on all imported goods. He said 10%, he said 20%. I think the way to interpret this is a really big number on tariffs. The second is he wants to revoke permanent normal trade relations with China, which means that virtually all Chinese imports

would be subject to these smooth holly rates. So by one estimate, this would rave tariff rates by 40%. The third pillar is the Reciprocal Trade Act, which says if other countries levied tariffs against us, we should levy equal tariffs against them. The fourth pillar are targeted tariffs on China, anywhere from 60%. He's also said 100%, but just jacking up tariff rates on China only. And the fifth are a series of targeted tariffs on the EU, on Mexico, often related to the auto manufacturing. Two of these five, so revoking permanent normal trade relations with China

and the Reciprocal Trade Act would require an act of Congress. Now, Congress could do this through reconciliation, which means they could pass this with 50 votes in the Senate. They don't need 60 votes to do it. So I think there's still a chance, but it's very unlikely. Goldman Sachs and other analysts have looked at this. It's not their base case. Look, I think it's 5% chance of these things happening. No, but I also think it's certainly far from the base case. But he does have a ton of authority through various, well, through various authorities granted to him through trade acts going back decades. And so you hear about, I'll kind of spare your listeners from going through each trade authority. You hear 301s, which are really broad. You hear 232, which was what Trump used

to put tariffs on steel and aluminum that's related to national security. You had the 201 authorities, which can be used to protect the domestic industry. But he's got all these different authorities. The one big question is, does he have authority to levy across the board tariffs? And analysts are totally mixed on this. If he did this, it would largely be through authorities granted through the AEPA legislation, which says that there's an unusual and extraordinary threat to the United States. The president has broad power to levy tariffs. One of the big questions is, has the AEPA authority changed in the wake of the Chevron deference decision by the Supreme Court, which is like the most wonky sentence I've ever said in my life.

But what your listeners may know is that the Supreme Court struck down Chevron deference, which says not only do agencies have less authority to interpret laws passed by Congress, but so do regulators. But we don't really know the extent to which Chevron deference can be applied. I think courts are going to have, or the end of Chevron deference can be applied. And so courts are going to have to figure this out. And so one of the most important questions is, has the authority granted by AEPA changed? And I mean, a better way to put it, I think, is what can the president do with respect to broad-based tariffs under AEPA after the Supreme Court decision around Chevron deference?

And no one really knows the answer that question. Yeah, you make it sound like there's like some real legal governors here, but I'm not so sure. I mean, you'll just go make, you could just go make the change and then take your chances in the court. and fight it out for however long and see how it plays out, right? I mean, well, that's the other point of contention, which is to say, I mean, I've heard from two analysts, both of whom I really respect. One says, yeah, he could levy across the board tariffs, and then courts would let that tariff sit while it reached a resolution. And others said, no, no, no, courts would put a stay on that, on that tariff, and it couldn't

last while it's working his way through the courts. I don't know. Yeah, right. The other a big proposal that in terms of the economics and in terms of the politics, I mean, where he's spending a lot of time, obviously, is on immigration policy. And I, you know, my sense is that both Harris and Trump are on board with controlling the flow of immigrants across the southern border. I mean, President Biden, obviously, has already addressed that to some degree through his executive order a few months ago, which on asylum seekers, it appears to be to be working to stem that flow. But when it comes to the unauthorized immigrants that are already in the country, and there's wide-range estimates of what that is, anywhere from 10 to 15 million people,

here there's a big, it feels like there's a big difference, and President Trump is consistently talking about deportation. How do you think about that? Is that, and are you, do you think that's a big deal from a macroeconomic perspective? Yes, I think the way you characterize it was exactly right. I mean, at the border, these candidates have similar approaches. I mean, I don't think Harris wants to separate families, but she does back the border bill, which Congress had put together and was ultimately blocked last year. So the real difference is an internal immigration policy. I think it would be economically disruptive, but also particularly socially disruptive, to deport millions of people.

I think that it would require a level of government heavy-handedness that we're not used to. We're talking about immigration agents at schools, which have typically been off limits. We're talking about immigration agents in the workplace. We're potentially talking about checkpoints. So as you drive to work, you have to show your proof of citizenship. I don't know how you can internally deport 10 million people without causing that type of social disruption. And I don't know how to model social disruption from a macroeconomic person. perspective. I do know how to model lower immigration, and we know that it would be a drag on

U.S. growth, particularly given our shortages in labor, that we've felt for the past seven, eight years, if not longer. I mean, so Goldman Sachs, when it comes to annual immigration is actually, I think, fairly skeptical about the internal immigration impact. So they have immigration of 750,000 immigrants per year under Republican sweep, 1.25 million under Trump with divided government, and 1.5 million under Harris. So, you know, I guess Harris with divided government would be 1.5 million. Trump with a sweep would be 700,000, so it's twice for Harris. But I think Goldman doesn't think it would be, as the internal immigration force probably would never materialize. But if that really happened, if we are talking about checkpoints, if we are talking about door-to-door,

sweeps, that's a level of social disruption, which I just don't know how to model that out in terms of macro consequences. Right, right. I actually think Brookings came out. I don't know where in Brookings came out with some estimates around immigration under different scenarios as well. And I think it was kind of like around 500K per annum, most likely scenario. And that's very similar to our kind of underlying assumptions if it's Trump sweep.

I know we're running out of time. And there's just so much to talk about. But maybe I can ask you kind of an open-in-a-question this way. Of all the other policies that President Trump has talked about are put forward, which ones that we haven't talked about make you nervous? And can you give me any policies that he's put forward that you think are reasonable, that are good? So.

I know that might be a tough question, but no, no, it's a fair question. And I thought about it a bit because I thought you might ask it. A, I think that his surgical approach to trade was, you know, made sense. I mean, China does not play by the rules. China skirts international norms on trade left and right. And I think that he was probably right to point that out at the beginning of his administration. I'm really happy we didn't see these big 35% across the board tariffs and that he chose to use his authorities. I thought some of the authorities were bizarre, particularly slapping tariffs on aluminum steel on our allies in the name of national security.

But some of them, you know, some of them were not bizarre. And the approach, you know, made some sense in light of how China chooses to engage international trade. So that was a policy, which I thought was decent. Another thing that he did, which maybe he doesn't get enough credit for, is he expanded the child tax credit under the TCJA. I've been wrong about a lot of things as an economist. One of the things which I was wrong about was I was very skeptical about the impacts of an expanded child tax credit. But once you start to see some of the anti-poverty effects on childhood poverty, it's hard not to be incredibly enthusiastic about that.

And so, you know, that was one of, I think, the positive things that came out of the TCJ as well. Very good. And you add it all up, again, going back to the scenarios, Harris, divided government, status quo feels like the economy on the other side of the election is similar to the economy, this side of the election. With President Trump, definitely not the status quo, we go in a different direction here. It feels like almost game-changing. What's the economy feel like on the other side of that? On the other side of a Trump? The second scenario, Trump sweep. I mean, so A, I think they're having a, I mean, you are right that it would be a very different

economy if Trump wins, regardless of what happens with Congress. I think in part because of the social disruption, in part because of the lack of immigration, and in part because of the trade. And I just also think that some of the rhetoric and what that does to us on the geopolitical scale would be something, I mean, we're not accustomed to not having allies as a country. And so that would be a sort of new world for us. If Trump wins and does see a sweep, I think it means a lot more deficits for the United States. The Center for Responsible Federal Budgeting estimated that his plan, I think, would raise their point estimate was around. It would cost about $7.5 trillion. My guess is you would get TCJ plus. You'd probably get a Fed chair who's extremely accommodative

and probably has a much closer relationship with the White House than we're used to. You might see de-anchoring of inflation expectations because of that. I don't think, you know, a lot of a lot of people outside of Fed watchers appreciate how important it was to have anchored expectations through the latest inflation episode. So, yeah, I completely agree. It is kind of a new world for us. If we get Trump in office, even if he doesn't have the supporting Congress, but if he does have support in Congress, you are talking about big deficit spending and even more changes than we're used to. Got it.

Okay. Very good. One final thing that I want to bring up is the deficit. You know, as you point out under President Trump, if he got exactly what he wanted, the deficits would be meaningfully larger. But even if you go back to BP Harris, if she becomes president and we have a divided Congress, it feels like the deficit is also going to continue to grow. We're not, we're not, doesn't feel like we're going to make any progress to it in

addressing the deficit. Do you agree with that statement? And how, is that something to worry about? How worried are you about that in terms of our deficit and fiscal situation? Yeah. If I'm, if I'm remembering correctly, the score around Harris's policies were around 2.5 trillion. 3.5. 3.5.

So 3.5 and 7.5. Yeah. So the Trump deficit is about a little over twice what the Harris deficit would be. I do worry about debt and deficits. And one thing that we're trying to do at Brookings with some of my colleagues here is parse out what this would mean for the U.S. economy if we had a fiscal crisis and the precise definition of the fiscal crisis. I think a lot of people right now are observing the upward trend in debt relative to GDP,

which now sits around 100% and is projected to go much, much higher with the aging of the population. Look, I think that this has the potential to upend the U.S. economy if it's not handled in a reasonable way. It has the potential to bleed into a financial crisis. And at the heart of this is investors around the world

seeing treasuries in a different light. And so treasuries right now are seen as a risk-free asset and enjoy lower rates because of that. If investors think that there's a decent chance, even a 1 or 2% chance of not getting paid on their investments in treasuries, I worry what that means for global financial stability. I worry what it means for the U.S. as a reserve currency,

for the dollar as a reserve currency. I just think it could lead to a financial crisis like when we saw in 2008. Now, I'm not sure that will happen. I mean, it is plausible. that we could be having this conversation mark in 20 years, and the debt-to-GEP ratio is 150%. And we said it wasn't as silly that we worried about it at 100%.

Similarly to the way we've been speaking 20 years ago, and the debt-to-G-P ratio was around 60%. We hadn't had the great recession yet. And everyone was saying, look, isn't this a problem? We might actually get to 100% debt to GDP, which we have, and it hasn't been a problem. So there is uncertainty around how investors will react. But I think the fundamental concern is that the view around treasuries is they transform from being a risk-free asset to a risky asset and what that means for the global financial system.

Yeah, I like your 20 years ago. The only difference is interest rates. Interest rates are very low for that 20 years, and they're not going to be low in the next 20 years. And our interest payments continue to rise as a share of the budget. So I hear you, though. Well, we covered a lot of ground. Marissa, Chris, anything that you want to bring up that I missed? I mean, I press Ben on lots of different fronts, but anything before we let him go that you're aching to ask him?

Chris? No, I think you covered all. Covered it all? Okay. And Marissa? I'm curious to know what you think, Ben, about the housing proposals from BP Harris. Careful, Ben. careful here.

The incentive to home builders to do entry-level housing and then the first-time homebuyers tax credit of 25K. So I think one of the biggest economic problems, maybe the biggest economic problem that we face this country is lack of housing supply. Mark has done a ton on this, and in my view, have been one of the leading analysts

around this question. So the problem is that this is not easily fixed. And so you've got all of these NIMBY advocates or anti-NMibbi advocates, YIMB advocates who say, look, the problem are zoning laws. And they're right. But where they're wrong to press on this is, it's important to acknowledge there's a reason for these local zoning laws. And that's in these jurisdictions, the voters like, you know,

incumbent homeowners like having a single family home. And I think that you've seen a lot of litigation that follow. on top of zoning deregulation, which shows that maybe it's just not enough to keep asking localities to deregulate because it's just not going to happen in a lot of circumstances. So then you're left with very few tools from the federal perspective to boost housing supply. You've got the low-income housing tax credit, which is a major part of Harris's proposal. It's a highly imperfect tax credit, but it's also one of the best tools we have, all of its imperfections aside for boosting housing supply.

And then she also wants to experiment with this $40 billion innovation fund, which is essentially a tool for the federal government to incentivize localities to change zoning laws and to change zoning practices. So things like if there's an affordable housing proposal, getting it approved or disapproved, getting a decision faster. Sometimes these proposals can sit for six or nine months. And so it's a host of tools to expand the housing supply. I'm not sure it will work. I think it will work. I think it will work. I think it's a good proposal.

But that's all directed at housing supply. She has this $25,000 first-time homebuyer tax credit. And I think I'm probably the only person I know, the only economist I know who really likes this. And so what you hear, so what economists will say is like, no, it'll just get capitalized in the price of housing. And like that's the end of the conversation. So let's try to get, if you have like three more minutes,

let's try to get a little more. Go ahead. Yeah. So we have had these before. we have had, so in 2008 coming out of the Great Recession, we had three different versions of a first-time homebuyer tax credit. The first was an interest-free loan, and then subsequent legislation changed it into a refundable tax credit. So we have some idea about what this will do for the housing, the cost of housing. I agree that it may raise the price of housing, but not so much that first-time homebuyers won't benefit. And if you go to what I think is probably the best study on this, they find that a first-time homebuyer tax credit, or at least the 2008 experience, raised home prices by around 1 to 4% in most jurisdictions. And the reason you'd be at 4% is because you have more first-time homebuyers in your

housing market. So a housing market that doesn't have very many first-time homebuyers, you'd see this tax credit raised by about 1%. For those that are in jurisdictions that have a lot of first-time home buyers, it increases around 4%. But A, then you have a developer response. And so in jurisdictions where you've got less strict zoning laws, you will see, with this increase in price of housing, you will see more homes being built.

And that offsets the price impact. But even more fundamentally, even at a 1 to 4% increase in housing prices, as a first-time home buyer, you're coming out ahead with the $25,000 tax credit. So even let's look at the median home in the United States, which is around $400,000. If you're seeing a 2% increase in the price of that home, it's going from $400,000 to $408,000, but you're still getting a $25,000 tax credit. So you're coming out, $17,000 ahead in terms of the cost of the home. And you have this tax credit, which will help you deal with high closing costs,

which is a whole other thing. And I've been on a rampage about that for years. So I do think the first time homebuyers, in most jurisdictions, come out ahead. incumbent homebuyers see this big increase in their wealth. And so the only group that's really disadvantaged by this are households who intend to buy a house down the road will not get the first time home buyer tax credit and don't currently own a home. And that's, you know, that's a subset of households. I think most households are coming out ahead with the first time home buyer tax credit,

either because they own a home and we'll see that boosts and wealth or because the value of the tax is more than the increase in the cost of housing. This feels like a whole other podcast, which we should, we actually should do. But I wonder, Ben, given the very idiosyncratic nature of the current housing market, I mean, the fact that the supply shortage is about as severe as it's ever been. I mean, supply shortage, meaning the vacancy rate for homes that first-time buyers would typically buy, kind of in the lower to middle part of the housing market is extraordinarily low. And if you, you know, give a buyer a credit and increases demand and there's no supply,

don't you think those elasticity, those house price elasticity, would be meaningfully larger than what you're quoting? Yeah. So there's two reasons to think that the 1 to 4% increase in housing we saw 2008 wasn't right. Right. One is the one you just brought up, which is it's a very different housing market, almost the exact opposite housing market today as it was then. That's a fair point. The second is that as a share of the median home price, $25,000 is larger today than $8,000 was in 2008.

So you could expect the home price impact to be the same. Even still, I mean, these are fair critiques. It's a good point you're bringing up. Even still, I think that the math works out. the first-time homebuyers are made better in almost all circumstances in almost all markets. Secondly, I mean, I think there's another study and I forgot who authored it and I only kind of skimmed it, but it found that the, it found a really big impact for Harris's first-time homebuyer tax credit on the order of, I forget what the percent was, but I remember kind of doing the back of the envelope

calculations and finding that it would raise housing prices by about a trillion dollars across the board from the aggregate stock of housing. It's, I'm not sure, I mean, maybe I'm not sure what you think about this. I'm not sure it really passes the smell test where you have $100 billion in tax credits lead to a trillion dollars in extra wealth. I mean, from a different perspective, this is like the best wealth creation tax cut you could possibly imagine with a thousand percent ROI. on the tax cut.

So I'm just a little skeptical of these claims that you would see an increase in the cost of housing on the order of a trillion dollars when the tax incentives are, you know, closer to $100 billion. Yeah, I'm not sure. I haven't done that calculator. I haven't thought about that. I mean, obviously, it's levered. So, you know, but anyway, I'll have to think about that.

That's interesting. But, you know, I'm not, don't get me. wrong. I'm not against the first-time home-buyer tax credit. I just think it probably should wait. Let's focus on supply. Let's build a lot of more affordable rental and for homership, homes, get that into the market. And then down the road, maybe in the second two, the last two years of the first term, that's when the home buyer tax credit would really, you know, do have some benefit. And I like your point, and I agree with it, that, you know, if build a, know that there's going to be demand for those homes because of the first time homebuyer tax credit,

that would incent them to build even more, particularly if they get those tax subsidies, you know, this tax breaks that's part of her, Harris's, you know, housing plan, supply plan. So I agree with that. I just, I would just, I'd wait, though. I don't think I'd layer that in right now. I think that, you know, puts folks bit on the treadmill. But anyway, this is, this is the fodder for another podcast. There's a lot to talk about there.

And I do want to be respectful of your time, and I really do appreciate it. And I think we covered a lot of ground. And, you know, I guess we should just buckle in, right, Ben? It feels like... Yeah, we'll know the outcome of the election anywhere from one to three months. And we can talk about it then. Exactly, exactly. Okay.

Any parting last words, Marissa, Chris, Ben, anything? Okay. Thanks so much, Ben. And really, I had a blast. Thanks for having you. I really appreciate it. And to you, dear listener, I hope you found this interesting. And, you know, we're still collecting questions.

We're going to take a listener questions. Probably next week. We'll start doing a few because we've got a, I think we've got a long list now. But please keep firing right. Chris, where should they send the questions to? It's a help economy at moody's.com. Help economy at what? Moody's.

Anyway, dear listener, thank you for listening. and we'll talk to you next week. Take care now.